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Now that CBS shareholders have been teased with the possibility of wresting control of the broadcast company from Shari Redstone, they are going to court to make it happen.
For a few weeks now, Leslie Moonves and Redstone have been battling it out in court and in board meetings. With a potential CBS-Viacom merger in the background, a special committee of CBS’ board of directors is asserting independence from its controlling stockholder — Redstone’s National Amusements Inc. — and has voted to dilute NAI’s 80 percent voting stake by issuing a dividend.
Redstone alleges the vote is invalid because the company’s bylaws have been amended. CBS alleges that the amended bylaws are invalid because they are inequitable and impermissible under Delaware corporate law.
In short, it’s a mess.
Alas, it will come as no surprise to see Class A stockholders (Redstone) and Class B stockholders (everyone else) now directly engaging in litigation with each other. On Thursday, the Westmoreland County Employees Retirement System filed a new lawsuit in Delaware Chancery Court against NAI, Redstone and two Redstone-aligned board members, Robert Klieger and David Andelman.
The complaint goes through Section 2(b) of CBS’ Certificate of Incorporation — a construction of nearly unprintable legalese destined to go down in the annals of corporate history or at least become the new drug of choice to cure insomnia.
If the CBS board issues stock through a dividend, it will happen after ample discussion of what is meant by ratable distribution and identical and non-identical securities and a proviso one will never ever hear on The Good Fight or any of the network’s other legal dramas.
Attorneys for Westmoreland give their interpretation of whether a dilutive dividend is permissible, which largely echoes Moonves, and for good reason, too, because they will be the beneficiaries in more ways than one.
Besides asking a court for a declaratory judgment that the Certificate authorizes the special dividend, the newest lawsuit characterizes the Certificate as a contract between CBS and its stockholders with NAI, as a controller, a party. As such, the suing shareholders attempt to hold the Redstones liable for breaching the implied covenant of good faith and fair dealing by using its position to nullify the share distribution provision through the bylaw amendments.
And if that’s not enough, there’s also a claim of breach of fiduciary duty — although it’s slightly different than the one asserted by CBS.
Whereas the earlier lawsuit theorized that Redstone and NAI are breaching their fiduciary duties by “abusing their control to undermine the independent corporate governance of CBS,” the latest theory is that Redstone and NAI are breaching their fiduciary duties by “interfering with the Class B stockholders’ right to the Special Dividend.”
While technical, it really comes down to “no backsies.”
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